Back in the day when top bankruptcy lawyers could still be had for a mere $850 an hour, I posted about the exorbitant fees generated in large, corporate bankruptcy cases and asked why so few challenged legal fees recovered through the bankruptcy estate. Three years later, with fees up to $950/hour or more, bankruptcy attorneys continue to prosper, recovering their full rates while creditors are forced to accept the remainder to satisfy their claims.

But not all bankruptcies are efficient, short, and sweet. When the proceedings are contentious, or if there's a lot of financial and industrial spaghetti to be untangled, the proceedings can go on for many months, even years, in which case the system grows somewhat less efficient. The creditors and debtors are joined by a third set of wily players -- the suits, lawyers, accountants, and financing wizards required to fix, defend, wind down, and restructure a failed company.

Most of these people, of course, bill by the hour. And thanks to the transparency of our legal system, we know precisely how much they bill. Each quarter, law firms, turnaround consultants, and accountants apply to the bankruptcy court, detailing the services they rendered and precisely how much they cost. Creditors can raise objections to the fees -- after all, every penny a law firm gets is one less available for bondholders. But they usually don't object too strenuously. And the firms don't offer discounts to companies just because they are bankrupt.

The American Lawyer and The National Law Journal have been cataloging bankruptcy fees for most of the big-name corporate failures of recent months, from Lehman and IndyMac to Chrysler and General Motors.

But as bankruptcies grow increasingly complex and impact a wider number of interests, such as bondholders and investors (who, in many instances, managed portfolio money for ordinary people), should law firms and other professional service providers be entitled to be paid their full rates, while other creditors sacrifice? Or do law firms provide a valuable enough service that they deserve the fees they charge in these matters?

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Bankruptcy Lawyers: Parasitic or Productive?

Back in the day when top bankruptcy lawyers could still be had for a mere $850 an hour, I posted about the exorbitant fees generated in large, corporate bankruptcy cases and asked why so few challenged legal fees recovered through the bankruptcy estate. Three years later, with fees up to $950/hour or more, bankruptcy attorneys continue to prosper, recovering their full rates while creditors are forced to accept the remainder to satisfy their claims.

But not all bankruptcies are efficient, short, and sweet. When the proceedings are contentious, or if there's a lot of financial and industrial spaghetti to be untangled, the proceedings can go on for many months, even years, in which case the system grows somewhat less efficient. The creditors and debtors are joined by a third set of wily players -- the suits, lawyers, accountants, and financing wizards required to fix, defend, wind down, and restructure a failed company.

Most of these people, of course, bill by the hour. And thanks to the transparency of our legal system, we know precisely how much they bill. Each quarter, law firms, turnaround consultants, and accountants apply to the bankruptcy court, detailing the services they rendered and precisely how much they cost. Creditors can raise objections to the fees -- after all, every penny a law firm gets is one less available for bondholders. But they usually don't object too strenuously. And the firms don't offer discounts to companies just because they are bankrupt.

The American Lawyer and The National Law Journal have been cataloging bankruptcy fees for most of the big-name corporate failures of recent months, from Lehman and IndyMac to Chrysler and General Motors.

But as bankruptcies grow increasingly complex and impact a wider number of interests, such as bondholders and investors (who, in many instances, managed portfolio money for ordinary people), should law firms and other professional service providers be entitled to be paid their full rates, while other creditors sacrifice? Or do law firms provide a valuable enough service that they deserve the fees they charge in these matters?